LONDON (Reuters) - Financial markets have understood the Bank of England’s message on future interest rate policy, although the Brexit process risks throwing things off course, new BoE policymaker Silvana Tenreyro said in an interview published on Friday.
Tenreyro, who joined the BoE in July, also defended the central bank’s decision to raise interest rates for the first time in a decade on Nov. 2, which many economists thought was too soon.
“I didn’t think this was premature and in fact I did waituntil I saw the signs from the surveys that convinced me,” shetold Bloomberg News in an interview. “We know there are some lags in the transmission of monetary policy so you can move too late - you have to make a judgment.”
Bloomberg reported that Tenreyro said two more interest rate rises would probably be needed to get inflation back to target.
Markets have “understood very well the BoE’s communications”, she was quoted as saying.
BoE Governor Mark Carney said on Nov. 2 that in broad-brush terms, the central bank was on the same page as investors who expect two more 25 basis-point rate hikes before the end of 2020.
However, Tenreyro said in the interview that the impact of Britain’s departure from the European Union was unclear.
“It depends on how households and companies react to the new normal, to the new potential. Shocks can hit the economy one way or the other and we will have to respond to that,” she said.
She added that she expected future growth to be “modest” and that it was not certain which way rates would move after Brexit.
“People up until recently thought that Brexit meant monetary policy would remain highly accommodative and interest rates would stay low forever,” she said. “But Brexit might present other challenges that require the opposite. It might require an adjustment either way, and it’s not obvious. That’s something to be prepared for.”
Reporting by David Milliken; Editing by Kate Holton and Peter Graff